For the umpteenth time in recent months, the Breton Woods Institutions – the World Bank and the International Monetary Fund have repeatedly cautioned Nigeria against its rising borrowing profile and the economic consequences of a possible debt overhang.
Also recently, the World Bank, through its Vice President for Africa, Mr. Hafez Ghanem, advised the Federal Government to reduce its borrowing and tap private investments that will yield multiplier effects on many sectors of the economy.
Although, Nigeria’s current Debt-to-GDP ratio is within the acceptable international threshold, we believe that the Federal Government should heed the repeated advice of the two global financial institutions to cut down excessive borrowing and put more energy into private investment in the economy.
In fact, the country’s current Debt-to-GDP ratio is 20 percent and it is within the acceptable global threshold of 56 percent and bearing in mind that excessive borrowing without proper utilisation of the loans could pose multiple economic challenges in future, the best option for the government at this point in time is to channel more investments to fund its development needs.
Recall that the country is walking on the path of debilitating debts again as its external debt as at June 30, this year, stood at $22 billion, with the Federal Government incurring as much as $17.8 billion, while the states and the FCT owed $4.28 billion. At the same time, the nation’s total local and foreign debt stock (federal government, FCT
and states) stood at N22.38 trillion ($73.21 billion). This is not only disturbing; it is upsetting that the debts swelled up within few years.
It must be checked before the country enters another debt trap again.
Also, there is nothing wrong with borrowing, But for Nigeria, experts point out that there is something wrong with excessive borrowing
because Nigeria is not only a bad manager of debt, it also lacks prudent management of such loans. It therefore makes economic sense for Nigeria to heed World Bank/IMF advice on borrowing at this point in time.
Recall too that the same Breton Woods institutions that are now cautioning Nigeria on the dangers of foreign borrowings are the same institutions that will determine the modality for the payment of the loans in the event that Nigeria defaults in repaying the loans in the future. Once beaten, twice shy. Nigeria’s sad experience with foreign loans in the 1980s and the 1990s, before it got debt forgiveness, should be a constant reminder to the nation that it should build its economy without resorting to loans again.
Indeed, in a world where the respect that a country gets across the world and particularly at international forums is determined by the
quantum of its foreign reserve, it pays Nigeria to substantially build up its foreign reserves to comfortable levels rather than embarking on deficit budgets that does not significantly improve the economy of the country or the standard of living of the people.
Even as the Breton Woods institutions are cautioning Nigeria on the dangers of unrestrained foreign borrowings, the Federal Government is still going ahead with a request for approval of the National Assembly for a fresh $2,868,540,000 external loan.
It is amazing that less than three months to the end of the 2018 fiscal year, the government is still feverishly looking for foreign loan to execute the budget. According to President Buhari’s letter to the National Assembly, $2.786 billion would be borrowed from the international capital market for part-finance the 2018 budget’s fiscal deficit and also finance key infrastructure projects. The government will also raise another $82.54 million from the international capital market to refinance the balance of $500 million mature Eurobonds.
As things are, the country’s debt has been increasing while its foreign reserve has not seen appreciable increase. At the same time inflow of
Foreign Direct Investments (FDI) has slowed down especially because of election risks. It therefore pays for the government to drastically
slow down on its penchant for foreign borrowings and prioritise its projects in line with increased receipts from the international oil market.
Going forward, the Federal Government must note that the oil market is waning. Therefore, it must henceforth avoid deficit budgeting that puts pressure on the government to embark on the dangerous path of external borrowings that puts the future of the country in jeopardy.
The foreign lenders are not friends of the country. If anything, they see Nigeria as a country that cannot manage its finances and has to turn to foreign borrowing to balance its books. The country is blessed with many resources and it can do without the dangerous foreign loans if only the government can harness the resources within the country to give the nation a sustained and robust growth.
